The Case for GameStop Hitting $1,000 This Year

Stock Market

GameStop’s (NYSE:GME) violent swings in recent days have caused many investors to wonder: “What the heck is going on with GME stock?”

Source: TY Lim / Shutterstock.com

Indeed, I believe GameStop’s recent moves represent a truly historic moment in investing history. The investing world has changed, and we’re witnessing history. Retail investors have found new power, and are buying the “stonks” they love best. In doing so, those with diamond hands are making a killing.

Here’s why I think GameStop could indeed hit $1,000 per share, soon.

GME Stock: Meme Status Really Means Something These Days

The rise of meme stocks is something I think hit Wall Street by surprise.

Indeed, GameStop’s surge is going to be taught in business school classrooms for decades. I remember hearing professors ramble on about short-squeezes, thinking, “this is all theoretical, and so rare, it’s not applicable.”

Boy, how the times have changed.

GME stock has surged as retail investor momentum has pushed short-sellers to cover their bets. A high short percentage, combined with a flurry of retail investors buying in tandem, did indeed appear to lead to a short-squeeze in late January.

Some believe there’s another elusive squeeze out there on the horizon. GME’s moves in recent days pay tribute to this. Thus, there’s those who are calling for a GME stock price well in excess of $1,000 per share.

I believe that’s totally within the realm of possibility today. Fundamentals no longer matter with this stock – hysteria has taken over.

There’s a Key Risk: GameStop Could Issue Shares, a Lot of Shares

There’s been a bunch of speculation as to why GameStop hasn’t issued shares thus far. Indeed, the recent spikes in the past few months seems to have provided great opportunities to do so.

However, it appears there’s now an indication there could indeed be something coming on the horizon. Here’s an excerpt directly from the company’s 10-K:

“Since January 2021, we have been evaluating whether to increase the size of the ATM Program and whether to potentially sell shares of our Class A Common Stock under the increased ATM Program during the course of fiscal 2021, primarily to fund the acceleration of our future transformation initiatives and general working capital needs. The timing and amount of sales under the ATM Program would depend on, among other factors, our capital needs and alternative sources and costs of capital available to us, market perceptions about us, and the then current trading price of our Class A Common Stock.”

In other words, the company’s not ruling out an equity issuance or two down the road. That shouldn’t surprise anyone.

Indeed, a stock that goes from roughly $4 per share a year ago to nearly $200 per share at the time of writing provides a great opportunity to raise some money. Any company’s management team has a duty to maximize shareholder value. Accordingly, an unwritten rule is to issue shares when a company’s share price is overvalued. Vice-versa, buying back undervalued shares is a great idea.

In this case, I’m still scratching my head as to why the company hasn’t acted thus far. Maybe the company’s management team is in it for a much bigger squeeze. Certainly, a lack of equity offerings has given this stock the fuel many believe it needs to hit $1,000 per share this year.

Conclusion

GameStop right now is the headline meme stock. That isn’t likely to change for some time.

Those on r/WallStreetBets chasing after those “tendies” and holding on with diamond hands may well be rewarded with GME stock valued at $1,000 or much more. Perhaps such a move will happen in short order. Anything’s possible these days.

Retail investors have found that, when synchronized, their individual purchases add up to market-swinging moves. My hat’s off to those still holding on with diamond hands.

I personally think the fact that investing has gone mainstream, and young investors are discussing investing on social media, is a great thing. If anything, this should be encouraged. My hope is that when these short-squeeze hopes do eventually fizzle (and that’s how I believe it will happen), these investors don’t leave the investing world forever.

That said, I’m short GameStop right now via various long-dated put options. While acknowledging that this stock can indeed go to $1,000 in short order, I also believe GME has completely detached from its fundamentals. It’s going to drop back down to earth. I have no idea when, but it will. Those “moon shot” bets have paid off, and my advice to those with diamond hands is to take a little off the table. Don’t leave empty-handed.

The reason I’m short: I’m not crazy. This stock has insane momentum. And my puts cap my maximum loss at 100%. I’m okay with that.

On the date of publication, Chris MacDonald held a SHORT position in GME.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.